--%>
Assignment Help - homework help

Effect of shipping costs

Assume that pound is being pegged to the gold at 6 pounds per ounce; on the other hand the franc is being pegged to the gold at 12 francs per ounce. Which, of course, states that equilibrium exchange rate must be the two francs per pound? If existing market exchange rate is 2.2 francs per pound, how you would take benefit of this condition? Explain about the effect of the shipping costs?

E

Expert

Verified

Assume that you required buying 6 pounds by using the French francs. If you will buy 6 pounds directly in foreign exchange market, it can cost you 13.2 francs. Otherwise, first you can buy an ounce of gold for 12 francs in France and then ship it to the England and sell it for the 6 pounds. Now, it will only cost you the 12 francs in order to buy 6 pounds. It is therefore valuable to ship gold as a result of the overpricing of the pound. Evidently, you may have an arbitrage profit by selling the 6 pounds for 13.2 francs in foreign exchange market. Arbitrage profit can be 1.2 francs. Up till, we have assumed that the shipping costs don’t exist. In case, it costs more than 1.2 francs to ship an ounce of gold, there may be no arbitrage profit.

   Related Questions in Financial Accounting

  • Q : CASH AND ACCRUAL BASIS OF ACCOUNTING

    Using the data below,prepare abbreviated income statements for the year 2003 and 2004 on cash basis. Cash receipts from sales: 2003 2004 2005 on 2003 sales $295,000 $160,000 $30,000 On 2004 sales 0 355,000 90,000 On 2005

    		•
  • Q : Categories under budgets are divide

    Write down the chief categories under which budgets are divided?

    		•
  • Q : How Social Darwinism support business

    What is Social Darwinism and how it was utilized to support business?

    		•
  • Q : Social issues & person statuses Think

    Think of person you will who often irritates you or whose behaviour greats on your nerves. First list that person statuses and role then analysed his or her possible role expectations, role performance, role conflict and role strai

    		•
  • Q : Restrictions of foreign equity ownership

    Describe various restrictions of foreign equity ownership.  Why countries impose these restrictions, explain your view on this?

    		•
  • Q : Explain Control of Cash Explain Control

    Explain Control of Cash. Illustrate briefly.

    		•
  • Q : Exchange rate changes decreases risk of

    Would exchange rate changes always raise the risk of the foreign investment? Explain some of the condition under which exchange rate changes can actually decrease the risk of foreign investment.

    		•
  • Q : Cost of accidents to an employer

    Discuss the cost of accidents to an employer in from a perspective of why prevention is better than cure ?

    		•
  • Q : Abnormal profits Atypically large

      Atypically large proceeds made by an individual or company from commercial activity. An abnormal profit exceeds the normal chance for profit derived from labor costs and capital and considered normal profit. Abnormal profit in a business resides of monopoly and consortium profits.

    		•
  • Q : China emerged as the important

    Explain facts that China has emerged as the second most imperative recipient of the FDI after United States in recent years?

    		•